Remittances are a necessity rather than a luxury for many expats, a fact which is cushioning the sector from the economic slowdown

Every year billions of dollars flow out of the UAE as expat workers send money home. They may be supporting family members or perhaps buying a property to return to, but whatever the reasons, the amount has been growing quickly. In 2010, the figure crossed the $10 billion (Dh36.7 billion) barrier for the first time, according to the World Bank; by 2013 it had nearly doubled to almost $18 billion.

But the years of heady growth have ended. Low oil prices, a slowing economy and cuts to major project spending are denting confidence and job security among expat workers. The value of remittances was nearly flat in 2014 at $19 billion and, while there doesn’t appear to have been any reduction, some are forecasting a drop in the amount of money being sent abroad this year.

“In 2015, we observed almost no effect on remittances flow in the UAE compared to previous years,” says Diana Jarmalaite, Analyst at research firm Euromonitor International. However, she adds that “2016 is expected to be a less favourable year, mainly because of the ripple effect that comes from the low prices for oil. We would expect the remittance market to decline at around 2-3 per cent.”

Of the money that leaves the UAE, the largest proportion by far goes to India, with 43 per cent of the total in 2014, according to the World Bank. Other major destinations are Pakistan, the Philippines and Bangladesh, which between them account for 35 per cent.

Some of these workers have been reaping a mini-windfall over recent years, as their home currencies have weakened against the US dollar, which the dirham is pegged to. In May 2014, for example, one dollar bought less than 60 Indian rupees, but today it buys almost 70 rupees (About Dh3.7). There have been similar moves with the Philippine peso, Pakistani rupee, Indonesian rupiah and Malaysian ringgit.

“In the UAE, 90 per cent of the population consists of expatriates, dominated by those from Asian countries whose currencies have depreciated against the US dollar,” says Promoth Manghat, CEO of UAE Exchange. “Since the dirham is pegged to the dollar, these factors work in favour of the expatriates, who get to send more money home.”

Indian and Filipino expats in the UAE stand to reap the biggest remittance returns this year, as their home currencies hit new lows against the dirham. The peso surpassed the 13 to Dh1 level for the first time in six years in the last week of January, and the Indian rupee has been on a downward trend against the dirham.

The competitive nature of the market in the UAE also helps expats. The market is contested by banks and specialist money transfer operators, but it is the latter that dominate. “The remittance market is mainly shaped by the big share of population who do not have access to actual banking services,” says Jarmalaite.

Competition between the different players means that the cost of sending money abroad is often relatively low, at 2-4 per cent — the global average is about 7.4 per cent.

These twin trends of low costs and depreciating currencies are a boon to expats but, on the flip side, workers are also having to consider what might happen as a result of the weakening macroeconomic climate. If job losses mount and expat numbers dwindle, the remittance industry will also be affected. For now, most industry executives appear confident. As many point out, sending money home is a necessity rather than an option for many expats.

“Despite indications of softening in certain sectors, especially those affected by lower oil prices, we predict that the impact will be somewhat limited on the remittance industry,” says Rashid Al Ansari, General Manager of Al Ansari Exchange. “The majority of remitters residing in the UAE have dependents back home who rely on regular money being sent.”

A recent World Bank report recently warned that if lower oil prices persisted and economic activity in the GCC declines, then “outward remittances from these countries may eventually decline. Despite the concerns, industry experts don’t seem overly worried. “We believe the long-term prospects for money transfers are strong as people continue to move out of their home countries in search of better economic opportunities,” says Hatem Sleiman, Regional Vice-President for the Middle East at Western Union.

Over the past 10 years, the population of the UAE has more than doubled from 4 million to 9.5 million, which has triggered a strong growth in expats sending money home.